Socially responsible investments still have a long way to go to gain a foothold in Asia ex-Japan’s retail markets, according to new research from Cerulli Associates.
The global research and consulting firm, said that while strides are being made in getting more Asian institutions to realise the value of socially responsible investing (SRI) to both returns and sustainability, progress has been slower on the retail front.
Although no reliable data is available in Asia, figures show that the share of retail SRI assets from other regions are still small, although growing. In Canada, Europe, and the United States, this share stood at 26% at the beginning of 2016–up from 13% in 2014, data from the Global Sustainable Investment Alliance (GSIA) shows.
With SRI still largely an emerging sector in Asia ex-Japan, Cerulli said that it expects the proportion of retail SRI assets to be “significantly smaller” in this part of the world, but that the growing number of sustainable funds in Asia ex-Japan signals a potential for retail SRI in the region.
As the GSIA found, the number of such funds grew by 15% annually from 2014 to 2016 to reach 658 in 2016–faster than the 11% growth recorded between 2012 and 2014.
Shariah figures boost
However, it is worth noting that the 2016 figure includes Shariah-compliant funds in its calculation of sustainable assets. Shariah-compliant assets alone accounted for 34% of the total $52.1bn of sustainable investment assets in Asia ex-Japan as of 2016, and have been growing annually by 3% since 2014.
Excluding Islamic funds, the number of retail SRI funds would be “significantly lower”.
“It does not help that the number of available environmental, social, and governance (ESG) funds in Asia ex-Japan is still small relative to other regions,” the report stated.
“Indonesia, for example, has yet to launch an ESG mutual fund, and based on Cerulli’s recent conversations with asset managers in that market, there is little interest to develop such products because of the lack of demand.”
Even within the Islamic space, despite the launch of several global Shariah funds after previous investment restrictions were lifted, Indonesian fund managers told Cerulli that sales agents are not marketing these products aggressively, and that appetite is limited.
Despite appetite, Cerulli added that there is growing evidence that ESG-compliant equities can outperform standard indices, as MSCI’s Asia ESG universal index beating its Asia standard index by five-year price shows. Zooming in on individual funds, a number of Asia-domiciled ethical funds achieved yearly returns of more than 30% in 2017.
“The challenge now is to get the word out that it pays to invest responsibly and sustainably,” the report concluded.